A firm has a budget constraint of $40 million to invest in new projects.Given the following information on four independent projects, which projects should the firm undertake?

Question

Quizplus · Accepted Answer

- For Project Alpha, the return on investment (ROI) is the highest at 25%. Investing $15 million in this project will generate a return of $3.75 million.
- For Project Gamma, the ROI is 20%, which is lower than Project Alpha. Investing $10 million in this project will generate a return of $2 million.
- For Project Delta, the ROI is 18%. Investing $8 million in this project will generate a return of $1.44 million.
- For Project Sigma, the ROI is 16%. Investing $7 million in this project will generate a return of $1.12 million.
 
Therefore, by investing $15 million in Project Alpha and $7 million in Project Sigma, the firm maximizes their ROI while staying within the budget constraint of $40 million. The total investment of $22 million will generate a return of $4.87 million, which is the highest return on investment out of all the possible investment combinations.

A Firm Has a Budget Constraint of $40 Million to Invest